Home owning becomes more expensive

Jenga Web Managing Director Nathan Luesby(right) with the and Hass Property Development Manager Sakina Hassanali during the launch of the Hass Index report for the 3rd quarter of 2013 at the Hilton Hotel on October 31, 2013.   Photo/SALATON NJAU

In Summary
High interest rates charged by commercial banks have frustrated Kenyans’ keen to own homes and making worse the country’s housing shortage, a new report said yesterday.
High interest rates charged on mortgages by local banks and VAT have contributed to the big housing gap in the country.
The highest interest rate being charged on mortgages is currently 18 per cent with the lowest being 13.5 per cent.

 By JOSHUA MASINDE
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High interest rates charged by commercial banks have frustrated Kenyans’ keen to own homes and making worse the country’s housing shortage, a new report said yesterday.

The HassConsult’s 2013 third quarter report released yesterday said commercial banks are charging in excess of 18 per cent relative to the current benchmark lending rate of 8.5 per cent, making the cost of owning a home in Kenya one of the highest in the world.

Coupled with the introduction of the Value Added Tax and other economic pressures, the report said, high interest rates charged on mortgages by local banks have contributed to the big housing gap in the country.

“Many banks continued to demand a nine point spread for mortgage rates – a margin almost unheard of in any other mortgage market,” said Caroline Kariuki, the chief executive of The Mortgage Company, that works with HassConsult in collating the quarterly property indices.

The slowdown in uptake of houses has been attributed to the spike in interest rates starting end of 2011 that continues to weigh heavily on properties, with middle class and even richer individuals continuing to find mortgage “out of reach”.

The report cites Equity Bank, Family Bank, Consolidated Bank and Diamond Trust Bank as charging the highest mortgage rates.

“Buyers continued to experience financial pressures and new cash for unmortgaged purchasing also showing signs of slowing down,” said HassConsult’s head of marketing and research, Ms Sakina Hassanali.

Interest rates surged to almost 30 per cent beginning end of 2011 and in much of 2012 but have been declining slowly in line with Central Bank’s policy of reducing the benchmark rate from 18 per cent in December 2011 to the current 8.5 per cent.

The highest interest rate being charged on mortgages is currently 18 per cent with the lowest being 13.5 per cent.

The interest rate spread are at a high of 9.5 per cent compared to just below six per cent prior to the spike in interest rates in 2011.

There are currently about 20,000 mortgages in a population of at least 40 million people.

“Even if you just look at the approximately 3.9 million who are deemed to be in the middle income bracket, that represents just 0.5 per cent of the potential market,” Ms Kariuki noted.

Analysts argue that even a low interest rate of 13.5 per cent that CFC Stanbic Bank is charging is still too high for most Kenyans.

They say this ought to be brought down to a single-digit level to encourage more people to take up mortgages as is the case in South Africa, the US and UK.

For instance, South Africa charges its borrowers just 8.5 per cent, with the UK charging 5.5 per cent and the US only 3.5 per cent.

According to the report, the UK has 9.2 million mortgages representing 37.3 per cent of households, while the US has 44.5 million mortgages or 59.3 per cent of the households.